Revenue Isn't the Only Thing

The unusual business model of this $21 million remodeling firm makes the numbers work and keeps employees happy

September 30, 2003

 

Gardner/Fox at a glance

Location: Bryn Mawr, Pa.

Corporate structure: C corporation

2002 sales: $21.093 million; 55% commercial remodeling, 45% residential remodeling

Net profit: 5%

Annual growth: 10%

Year founded: 1987

Principals: Mark Fox (left), Brook Gardner (right), Mark Pennington (not pictured)

Employees: 12 architects, 32 field/carpentry, 4 interior designers, 5 carpenter helpers, 4 estimators/expediters, 9 project managers, 6 office/clerical, 3 field specialists, 2 part-time employees

Web site: www.gardnerfox.com
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Achieving $21 million in annual commercial and residential remodeling sales after 16 years of operation is quite an accomplishment. Gardner/Fox, an architectural, consulting, construction management and remodeling firm in Bryn Mawr, Pa., has done just that. But are its other numbers as impressive as its sales figures? The lessons learned from a company that has experienced such extraordinary growth, in an industry in which many grow quickly only to fall even faster, are useful to all.

When engineer Brook Gardner and architect Mark Fox started Gardner/Fox in suburban Philadelphia in 1987, they intended to have a business that combined elements of engineering and architecture. Previously employed at a company where they worked on conversions of historic buildings, they figured their startup business would be limited to design and consulting. They were wrong.

Within a few months of opening their doors, they realized their business model needed to change. After repeated requests by clients for recommendations on who could build the projects they were drawing, Gardner and Fox realized the opportunity existed to do construction as well. They soon added Mark Pennington, a former finance specialist with General Electric, as the third principal of the firm.

For most of the first two years, the three principals were hands-on in all aspects of the business, even construction. None of them was trained as a carpenter, and the lessons they learned proved invaluable. Carpentry lesson No. 1: "There are people who can do this better than us," Pennington says.

In late 1988, Gardner/Fox hired a carpenter as its first employee. The company subcontracted much of its construction work for the next year and then began hiring employees to do that work.

 

This Cape Cod (bottom) in Wayne, Pa., turned into a stone Colonial (top) with a three-story addition. Gardner/Fox designed and built the remodel and the two-story entry.

These days, the company splits its work between two divisions: residential, directed by Fox, and commercial, led by Gardner. Pennington serves as director of business services. A typical residential job involves an addition or a renovation in the $150,000 to $250,000 range, while a typical commercial project is a tenant fit-up for $250,000 to $400,000. Gardner/Fox also does a lot of rehabilitation work on medical offices.

Expanding in all directions

While design/build isn't new, integrating architecture, construction and engineering is somewhat unusual. Opportunities for expansion and cross-selling appear unending, and customers get one-stop shopping. In a world where time is in short supply, providing multiple solutions makes a company attractive.

Gardner/Fox also finds that residential and commercial relationships feed off each other. Residential customers hear about the commercial side of the business, so some with commercial facilities hire Gardner/Fox for office fit-outs or expansions. Similarly, with the attitude that "commercial contacts live someplace," the company tells commercial customers about its residential remodeling. This provides substantial business for Gardner/Fox, though customer referrals remain its primary source of business. Services offered on the commercial side parallel those on the residential side.

 

Running the numbers

Overall, the numbers appear to work for Gardner/Fox.

Although its gross profit is substantially lower - approximately 12-13% - than either the 2003 Professional Remodeler Business Results Survey average or industry standards, its net profit - 5% - falls within the industry's common target range.

As discovered by many other remodeling companies, it's often more difficult to ask for and get large markups and, therefore, large profit margins on jobs with big price tags, especially high-profile commercial projects with a competitive selection process and fierce bidding. The economic climate has tightened Gardner/Fox's residential margins as well.

Assigning a number of expenses that other remodelers might consider overhead to direct costs also lowers Gardner/Fox's gross profit. These include employee cell phones and vacation days.

The company limits its overhead - which has remained constant at 7%, when annual sales were $14 million as well as at the current $21 million - primarily to salaries and benefits for support staff, salaries for the three principals and office rent.

A sales closing rate of approximately 20% on prospective residential remodeling projects indicates the company is not underbidding to attract work. Recognizing that it hasn't charged enough for design services, Gardner/Fox plans to double its design fees to a level comparable with those of other architectural firms.

The company has grown opportunistically, hiring personnel to meet possibilities as they present themselves. Gardner/Fox has focused on adding services that contribute to the overall success of its construction projects. Most recently, it added landscape architecture this year and interior design two years ago.

Fox says interior design originally was added for the company's benefit, not the clients'. Customers were not making selections on a timely basis, which adversely affected production schedules. An interior designer on staff could help customers make all of their selections on time.

Now, the company's remodeling jobs include a set number of hours of interior design assistance as part of the contracted price. Exceeding those hours incurs a fee. Also, Gardner/Fox offers an extended design contract to assist in matters such as furnishings and decorating. As with all of its services, the company targets a 5% net profit for this work.

Policies and processes

Gardner/Fox uses its architects as sales staff, a concept that began when Fox met all prospective clients. (He still does on the residential side.) Fox got a sense of clients' needs, prepared drawings, presented those drawings, and then prepared and presented a construction bid.

Based on that experience, Gardner/Fox continues to pursue an architect/homeowner relationship rather than a contractor/homeowner relationship. Fox believes homeowners trust architects more than contractors, finding architects to be creative people who can best "show the vision."

He also says architects are enthusiastic about projects and can provide prospects with "neat drawings and neat perspectives." Fox believes this creates a real connection between the designer and customer early in a project.

The company tried using a commissioned salesperson in 2000, but that experiment lasted only four months because the salesperson did not understand the construction business. "In order to sell something, you have to really know it," Fox notes.

After Fox or another architect meets a prospective customer, understands the prospect's needs and gets a sense of the prospect's budget, one of the company's four estimators assembles a bid to meet that budget. Once the drawings and bid are completed, the architect returns to the prospect and presents both - a more consultative sales method.

 

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

Keeping employees happy

The Gardner/Fox principals try to hire and keep the best people. With annual staff turnover of 5% or less, their program appears to work.

By providing what the competition often does not, Gardner/Fox offers an impressive list of benefits. Some vary depending on hourly/salaried status and/or longevity with the company.

The drawings then can be bid if the prospect desires. If they are bid, Gardner/Fox bills the client for the design fee. Otherwise, it rolls the design costs into the construction price. Typically, the design fee is 3-4% of the construction price.

Offering a five-year warranty on residential jobs probably helps Gardner/Fox retain higher-end prospects for complete design/build projects. (Warranties on commercial jobs vary but usually last one year.) One carpenter, supported by a project manager, handles all warranty work and has no other responsibilities, so customers remain satisfied long after project completion.

Lessons learned

Looking back, Pennington wishes the owners had hired staff earlier so those experienced in the trades could have accomplished the construction aspects more efficiently. Similarly, the principals believe that adding services such as landscaping and interior design sooner would have benefited the company's overall fortunes.

Finally, the principals believe their formal and ongoing marketing program, which began in 2001 and is handled in-house, should have been started far sooner. Pennington says they failed to spend enough money to boost name recognition in the early years, when they relied on more low-key marketing such as job signs and were inconsistent even with those efforts.

Currently, 5% of Gardner/Fox's budget goes toward marketing. On the residential side, marketing efforts include home shows, postcard mailings, brochures and advertising in the home-and-garden sections of newspapers. The company markets its commercial services to health-care systems and nonprofit organizations by sponsoring golf outings and advertising in print materials such as annual reports, programs and booklets.

Pennington says the current, more formal program has "stabilized the phone ringing" and would have paid for itself easily in increased business if implemented sooner.

 

Gardner/Fox's commercial heath-care work occasionally includes new construction, such as this dialysis center in Langhorne. Pa.    Gardner/Fox renovated this Horn & Hardart Coffee Co. franchise in a Center City Philadelphia high-rise to be fully operational in only four weeks. Gardner/Fox constructed the project. The architect was Granary Associates.

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